Chapter 13: Expenditure Cycle Flashcards
The Expenditure Cycle
the end to end processes necessary to procure services or products in exchange for cash. Give cash, Get goods/services
4 steps to the expenditure cycle
- Place Order of materials, supplies, and services
- Receive service or products
- Approving supplier invoices - process invoice
- Pay Cash
Economic Order Quantity (EOQ)
Predetermined order quantities when stock drops to replenishment level
Material Required Planning (MRP)
Schedule production and purchasing based on sales forecasts
Just in Time Inventory (JIT)
Minimize inventory and build to order instead of build to plan (eliminated finished goods)
Purchase Requisition
the need to purchase goods or supplies that identifies the requisitioner; specifies the delivery location and date needed; id the numbers descriptions quantity and price of each item requested and may suggest a supplier.
Inaccurate Inventory records
- perpetual inventory system
- barcoding and RFID
- Periodic phyiscal counts of inventory
Purchasing items not needed
- perpetual inventory system
- review and approval of purchase requistions
- centralized purchasing function
Purchasing at inflated prices1
- price lists
- competative bidding
- review of PO
- budgets
Purchasing goods of inferior value
- purchasing only from approved suppliers
- review and approval of purchases from new suppliers
- holding purchasing managers responsible for rework and scrap costs
- tracking and monitoring product quality by supplier
Unreliable suppliers
requireping quality certification
collecting and monitoring supplier delivery performance data
Purchasing from unauthorized suppliers
- maintin a list of approved suppliers
- review and approve of purcahses form new suppliers
- EDI specific controls
Kickbacks
- require purchasing agent to disclose financial and personal interests in suppliers
- train employes how to respond to gifts from suppliers
- job rotation and mandatory vacations
- Supplier audits
who places the purchasing order
purchasing agent (Seg of duties)
what is an authorization control in purchasing
supervisor and manager approves the purchase requisition
purchasing order
a document or electronic form that formally requests a supplier to sell and deliver specified products at designated prices. A promise to pay and become a contract once the supplier accepts
blanket purchase order
commitment to purchase specified items at designated prices from a particular supplier for a set time period (often a year),
Vendor Managed Inventory
reduces purchase and inventory costs by outsoursing much of the inventory control and purchasing function: suppliers are given access to sales and inventory data and are authorized to automatically replenish inventory when stocks fall to predetermined reorder points.
Reverse Auctions
reduces purchasing-related expenses. Suppliers compete with one another to meet demand at lower price.
Pre-awarded audit
typically for large purchases that involve formal bids by suppliers. Internal auditor vists each potential supplier who has made the final cut in teh contracting process to verify the accuracy of its bit.
kickbacks
gifts from suppliers to purchasing agents for the purpose of influencing their choice of suppliers.
4 steps upon receipt of items
- inspect packing for damage
- count and inspect contents (compare to PO- receiving shouldn’t see prices/ quantities)
- document receipt
- transfer items to warehouse, production, other
Who does the receiving department report to
warehouse manager, who reports to the vp of manufacturing
receiving report
documents details about each delivery, including the date received shipper supplier PO number
debit memo
records the adjustment being request for goods returned
where do the copies of the debit memo go
- one to the supplier who subsequently creates and returns a credit memo in acknowledgement
the AP department is notified and adjustments to the account balance owed to that supplier.
2.copy of the debit memo goes to the shipping department to authorize their return to the supplier
Accepting unordered items
- require approved PO
Mistakes in counting
- receiving department shouldn’t know price or quantity
- incentives
- document transfer of goods to inventory
- use bar codes and RFID
- Configuration of ERp system
verifying receipt of services
- budgetory controls
2. audits
Theft of inventory
- restriction of physical access to inventory
- periodic physical counts
- documentation of all transfer of inventory between receiving and inventory employees
- segregate custody of inventory versus receiving
what should the receiver be required to do
indicate receipt and acceptance. OK to pay , sign, date. Document on packing slip , invoice, online
who approves the supplier invoices for payment
Accounts payable department
what does the AP department approve
the supplier invoices for payment
When does the legal obligation to pay the suppliers arise
the time goods are received.
what need to be compared when supplier’s invoice is received.
purchase order and the receiving report
Voucher Package
PO
Receiving report
Sales Invoice
Nonvoucher system
each approved invoice and supporting docs is posted to indivdiual supplier records int he AP file and is then stored in an open invoice file. When check is written to pay for an invoice the voucher package is removed from the file, invoice is marked paid, and then voucher package is stored in paid invoice file
Voucher System
disbursement boucher is also created with supplier invoice is approved for payment.
disbursement voucher
identifies the supplier, lists of oustanding invoices, and indicates the net amount to be paid after deducting any applicable discounts or allowances.
3 advantages to voucher package
- reduce number of checks that need to be written
- because dibursement voucher is an internally generated doc, it can be prenumbered to dimiplify tracking all payables
- because the voucher provides an explicit record that a vendor invoice has been approved for payment, it facilitates separating the time of invoice approval form the time of invoice payment, q
Evaluated Receipt Settlement (ERS)
invoice less approach, just PO and RR. It uses PO terms to calculate payment. The supplier/vendor do not send an invoice
Errors in supplier invoices, paying for items not received
- compare to PO and RR
2. check math
Fictitious vendors/suppliers
- approve new vendors
- restrict to vendor master file
- document receipt of goods/services
Accounts Payable posting errors
- data entry edit controls
2. reconcile AP sub with GL
Procurement card
corporate credit card that employees can use only at designated suppliers to purchase specific kinds of items.
who does the cashier report to
treasurer, responsible for paying suppliers.
segregation of duties of cashier
cash handling and recording keeping of purchasing and AP department.
When are payment maid
when AP sends the cashier a voucher package.
Pay for items not received
- 3 way match or ERS
- check signer reviews voucher package
- recipts for all expense reports, petty cash, etc
Duplicate payments
- cancel voucher package when paid
- require voucher package for each check
- pay only original invoices
- application software checks for duplicates
Theft of Cash
- pre-numbered secure check stock
- secure checking signing machine
- access controls for EFT and online banking
- do not let AP write checks
- reconcile bank accounts (independent person)
- count cash on hand and reconcile
Check Alteration
- special ink and paper
2. positive pay with banks
Missing prompt payment discounts
- schedule payments on due dates
2. cash flow budget
